Tokmanni - The era of discount retailing

Tokmanni - The era of discount retailing Equity Research Read full report here → Tokmanni’s 2010-2020 revenue CAGR was 5.4%. At the end of 2020, Tokmanni had 192 stores across the country and it is the largest general discount retailer in Finland. We expect 21E revenue growth of 1.5% and adj. EBIT margin of 9%. We keep our rating “BUY” with TP of EUR 20.

Largest general discount retailer in Finland

Tokmanni is the largest general discount retailer in Finland. Tokmanni’s revenue CAGR in 2010-2020 was 5.4%. Tokmanni reached its targeted EUR 1bn in sales in 2020 with further store network expansion and strong LFL growth. Revenue grew by 13.6%. The company also reached its adj. EBIT margin target of ~9% (9.3%) last year. The company had 192 stores across Finland at the end of 2020 and 98.8% of Tokmanni’s revenue came from physical stores.

2020 was a record year

2020 was exceptional year due to the coronavirus and the company clearly benefited from the changed environment and consumer behavior as LFL revenue increased by 12.3%. It is also noteworthy that the company has been able to attract new customers with broad product assortment and affordable prices as the share of new customers was 20% in 2020. The company targets to increase its retail selling space annually by 12,000m2 which means approx. 5 new stores per year. Additionally, Tokmanni’s long-term target is to achieve low single digit LFL revenue growth. The company will set its refined strategic targets in connection with the CMD which takes place in March.

“BUY” with TP of EUR 20

We expect 21E revenue to increase by 1.5% to EUR 1089m. In 22E-23E we expect revenue to grow by 3.5% and 3.4%, respectively. We expect 21E adj. EBIT to be on a par with last year and adj. EBIT margin of 9%. In 22E, we expect adj. EBIT margin of 9.2% and in 23E, 9.3%. We approach Tokmanni’s valuation through our scenario analysis and valuation multiples. Our scenario analysis consists of three scenarios: base case, optimistic and pessimistic. The scenario analysis yields a fair value of EUR 20. On our estimates, Tokmanni trades with 21E-22E EV/EBIT multiple of 13.8x and 12.9x, which is 6-7% discount compared to the Nordic non-grocery peers and 17-18% discount compared to the int. discount peers. We keep our rating “BUY” with TP of EUR 20.

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